Mom had a traditional IRA that was converted to a Roth IRA in 2022. I inherited the Roth IRA. What are the withdrawal rules? Mostly related to 5yr earnings being taxed

[redefender90]

How do we consider earnings versus contributions If it was converted two months ago? Is everything considered a contribution? is there a 5 yr rule for earnings in an inherited ROTH Ira secenario?

[TomD8]

This web reference provides a very good summary of your options:

https://www.investopedia.com/inheriting-roth-ira-from-parent-5220471

If you have other questions, the firm that is the custodian of the IRA will likely be glad to assist you.

[Opus 17]

[edited to make corrections]

You are not an "eligible" beneficiary so you can't treat the IRA as your own.  It must remain as an inherited IRA and you must withdraw all the funds and close the account within 10 years.  You can rollover the funds to another IRA if you want to use a different broker, but it must always be designated as an inherited IRA.  In addition, the IRS has draft rules that you must take an RMD each year over those 10 years.  You must withdraw at least a minimum amount each year calculated based on your life expectancy (or maybe the life expectancy of your mother, it's complicated), but you can withdraw more.

You always withdraw contributions first, conversions second and earnings last.  Contributions are never taxed.  Conversion amounts are not subject to income tax because that was paid when the conversion was made, but conversion amounts are subject to a 10% penalty if they are withdrawn less than 5 years from the date of the conversion.  However, the 10% penalty never applies to the beneficiary of an inherited IRA.

Earnings are taxed if the withdrawal is made before age 59-1/2, or if the Roth IRA has been open less than 5 years.  This rule does apply to beneficiaries. 

In short, you can withdraw the conversions without tax, but if there are earnings, they will be taxable if withdrawn before 2027.  You may want to ask the plan trustee for the exact amount of the conversion, so you can plan ahead. 

[dmertz]

That reference doesn't really answer the question, and don't trust any tax advice you get from an IRA custodian, particularly if the custodian is a bank.

If your mother had any Roth IRA before 2017, the inherited Roth IRA is qualified and any amount can now be distributed tax free.

If this conversion established your mother's first Roth IRA, the amount converted (likely most or all of the present value given today's market conditions) can be distributed without tax or penalty.  Any amount beyond the amount converted would be earnings that would be taxable if distributed before 2027.

Given the potential for tax-free growth, it's often beneficial to leave the money in the inherited Roth IRA as long as possible.  Since your mother died in 2022, you have until December 31, 2032 to completely distribute the Roth IRA.  Until then, no distributions are required.  (It would be a bit longer before the inherited Roth IRA would need to be drained if you are an Eligible Designated Beneficiary because you have not yet reached the age of majority, are disabled or are chronically ill but annual RMDs would be required.  If you are an EDB you have the option of opting out of EDB status and into the 10-year rule.)

[Critter-3]

A final return needs to be filed for 2022 for MOM and the conversion will be taxed on that final return.